Facebook announced support for chatbot payments a few weeks ago. But depending on the market, up to 99 per cent of people will be unable to use the feature. How come?
Outside of US and Western Europe, card-based payments are not widely available. Credit card penetration in India stands at two per cent, Brazil at 32 per cent and Indonesia at 2 per cent. These are core markets for Facebook and others like Apple, Spotify and Netflix. Global Internet growth has slowed down but is accelerating in India.
David Marcus has a background in alternative payments. So Facebook must be aware that unbanked markets like India need a different approach. After all, why else would they have launched Facebook Lite and Internet.org. But what are other merchants doing and what are the options to capture this audience?
For card-based payments, the setup is simple. Integrate a gateway and process payments from any bank card owner. But most people in emerging markets don’t even have a bank account. Forty-seven per cent of Indians, 32 per cent of Brazilians and 64 per cent of Indonesians are not customers of any bank. The solution is to add local payment methods, e.g. digital wallets. But this approach is not scalable as the alternative payments landscape is fragmented.
In India alone, there are dozens of digital wallets available. The biggest one (Paytm) has a user base of roughly 130 million. The others combined (Oxygen, Mobikwik, FreeCharge, PayUMoney and ICICI Pockets) add another 65 million users. Signing contracts and integrating six different payment providers takes time.
Additionally, there are more smartphone owners in India than digital wallet owners. Out of 220 million smartphone users, 25 million would get left out even with the six integrations in place. Complexity grows with each new market as merchants need to integrate more payment providers.
Banks and digital wallets are unable to reach large parts of the population. This means digital merchants need to look elsewhere for growth. And there is an obvious answer at hand: mobile operators. Telcos providers hold the payment relationship with the audience in emerging markets. Bank account and credit card owners are a minority.
In India, there are 300 million more mobile operator subscribers than bank account owners. In Brazil, 66 million. In Indonesia, 163 million. Half a billion people are unreachable by banks in just these three countries. But they buy services from their mobile operator each month.
Banks are unable to keep up with smartphone ownership and mobile Internet growth in emerging markets. Mobile operators are well positioned to take over the role of banks in emerging markets. They have a monetary relationship with almost the entire population in every country of the world. This gives them the ability to fill the online payments gap.
Chatbot payments with credit cards are great for France or the US. But it doesn’t work in emerging markets. Forty-two per cent of e-commerce traffic comes from mobile devices but mobile generates only 21 per cent of mobile commerce revenue. Emerging markets are mobile-first and due to lacking payments, this revenue gap is likely to grow. Carriers can close this gap by leveraging the payment method that almost every person in emerging markets already owns: a SIM card.
The first steps in this evolution are already happening. For example, Etisalat recently launched a mobile wallet for its users. Mobile money services combined process an equal amount of money to PayPal. But mobile operator wallets have serious limitations in interoperability. They are also not used much for cross-border transactions. 82 per cent of the transaction value in mobile money services today comes from P2P transfers and bill (e.g. utility) payments.
Mobile operators could process payments for Uber rides or items bought off of Amazon. But for this to happen, carriers need to solve four key challenges.
- Interoperability. The technical infrastructure of mobile money services need to be unified. If it’s not simple and quick to integrate, there will be no merchant uptake;
- Consumer experience. Mobile money services have been built with feature phones in mind, but smartphones are taking over. Carriers will also have to upgrade their technical infrastructure to provide a seamless online payment experience;
- Legislation: The launch of mobile money services should be as effortless as possible for mobile operators. Bureaucracy and complicated legislation today hinders the access to online payments for a large amount of people living in emerging markets;
- Fees: mobile money services have gone through several phases (VAS: 10-30 per cent payouts; virtual content: 30-70 per cent payouts; digital content: 70-90 per cent payouts). In order to become a true alternative to banks, payouts need to cross the 90 per cent threshold. Fortunately, mobile operators are beginning to realize this
Payments inside chatbots, for Uber rides and items bought off of Amazon, could be processed by mobile operators in emerging markets. That is, if the carriers innovate and merchants push them as well. In the longer run, this also opens up the possibility for carriers to launch services today provided by banks.
By 2020, we could see a mobile operator being the entity in a market like India who provides deposit, insurance, investment and checking account services.